Thursday, 28 January 2010

Argentina aims to tackle drug counterfeiting, fight against the “medicine mafia” and control drug prices.

The distribution of counterfeited drugs in the public sector has been a difficult pill to swallow, but the government has responded with new, and more aggressive, regulatory measures to tackle drug counterfeiting and fight against the “medicine mafia”. Additionally, the government aims to reduce drug prices and has indeed formalised an agreement with drug producers valid until 2010. Below follow the main regulatory measures implemented in QIV 2009:

Under Law 26,524, issued in November 2009, the penal code was reformed, incorporating drug counterfeiting.

In November 2009, Article 1 of the Pharmacy Law No. 17,565 was modified, therefore OTC medicines can only be sold by pharmacists or authorised dispensers in pharmacies.

The Chamber of Deputies approved a drug traceability regulatory draft in October 2009, which is now pending in the Senate.

Additionally, a formal price-cut regulation was introduced in November 2009 to reduce the price of 600 medicaments by 30.0% until 1st July 2010.

The Australian generics market will benefit from the impending patent expiry of a number of successful drugs, which will cushion it against further government price cuts.

Recently-released data from the Pharmaceutical Benefits Scheme (PBS) indicated that 12 out of the top 20 best-selling drugs by volume in 2008 were now available as generic drugs; the majority of these drugs experienced falling sales in the same year. An example of one of these drugs is Merck’s Zocor (simvastatin), whose patent expired in December 2008; this was the second leading drug by volume of sales. However, generic drugs are also going to be the target of further PBS price cuts, as the Scheme seeks to keep health expenditure low. For example, legislation that came into effect towards the end of 2008 has generally been viewed as negative by generic companies, which believe that they reduce the pharmacist’s ability to discount, as well as cutting prices.

It is likely that Australian imports of pharmaceuticals will increase by a substantial amount in 2010. This is because the Australian dollar in 2010 is projected to be as close to parity with the US dollar as it ever has been. Having invested in R&D pipelines in recent years, the PBS will be expecting new blockbuster drugs to emerge, and like in the past, the PBS will be willing to pay for them. Indeed, generic drugs will likely face the brunt of price cuts if a new blockbuster drug were to emerge.

There have been a number of worrying signs for the Bangladeshi pharmaceutical market in the last year.

Reportedly, unscrupulous drug sellers sell almost 90% of stocked drugs without prescription. Bangladesh is an extremely poor country, and many of the population cannot afford to see health professionals when they fall ill. There has therefore been a long tradition of self-medication in the country, which, for a country where many citizens are uneducated, leads to the misuse of drugs; a study by the University of Dhaka found that 83.4% of people have bought drugs or medicines in life without a formal prescription of a physician. Unlike in other markets, the Bangladeshi pharmaceutical distribution network tends to be more retail-orientated and the bulk of distribution is done by the companies themselves. However, drug stores at Dhaka's major wholesale market closed their shutters in November 2009 in protest against the arrest of their fellow traders in the port city of Chittagong. An anarchic situation is prevailing in the marketing and sales of medicines in the Bangladesh; thousands of illegal and unlicensed drug stores exist in the country. On top of this, the scandal involving Rid Pharmaceuticals, which led to the deaths of 24 children, highlighted the shortcomings of the regulatory agency, the DDA.

Due to the sheer size of the population, Bangladesh cannot simply be dismissed. The country has a large generics market, and companies such as Square and Beximco are beginning to have success overseas. However, despite the country possessing huge manufacturing capabilities which supply 96% of domestic need, the complete lack of R&D in domestic companies could cause the market to stagnate, especially if companies have not evolved by the time the TRIPS agreement comes into effect. Having said that, multinationals should view Bangladesh as a possible manufacturing base. Bangladesh also appears politically stable after decades of instability and coups, and the economy is growing by over 6% per annum.

The market is stronger due to new regulatory measures, increasing drug consumption and sizeable opportunities in the generic sector.Increasing regulatory compliance ...

Demand should increase as the country is emerging from the economic downturn much quicker than anticipated. Recent regulatory developments include the implementation of the National Drug Control System, published in November 2009; registration requirements for APIs, published in November 2009; and a new labelling & packaging regulation, published in September 2009. ANVISA is also working on a draft for the regulation of biologic copies; the aim is to encourage local production of these medicines.

Rising purchasing power, fuelling drug consumption ...

The pharmacy sector in dollar values registered a slow growth in 2009 but the outlook is positive, as the population’s purchasing power is increasing. Future OTC sales are expected to be affected by the new advertising regulation, enforced in June 2009, and the new dispensing practices, published in August 2009. One of the new dispensing measures was that OTC medicines could no longer be sold over the counter. This, however, was overturned by ABRAFARMA in October 2009.

Wave of acquisitions in the generic sector ...

Generics sales continue to grow at a higher rate than the overall pharmacy sector, and they are expected to represent 20% of the sector by volume in 2010. In September 2009, it was rumoured that the local generic producer, Neo Química, was being acquired by Pfizer, but instead it was grabbed by the leading OTC company Hypermarcas in December 2009. This was the second major acquisition in the generic sector in 2009, following sanofi-aventis’ acquisition of Medley.

Demand for pharmaceuticals is set to increase, but the economic downturn could have an impact on future healthcare expenditure.

The Canadian pharmaceutical market is projected to grow at a relatively fast rate in the coming years, strengthened by an increasing demand for pharmaceuticals, due to an ageing population and a commitment to a high standard of healthcare provision. However, due to the economic recession, public finances are set to deteriorate for the first time in a decade, and spending constraints could affect future expenditure on healthcare. In addition, since Canadians’ private health insurance tends to be through their employment, redundancies caused by the global economic downturn may mean a reduction in private healthcare insurance.

The future of parallel trade between Canada and the USA is uncertain. As patented drug prices in Canada are controlled by the government, they tend to be considerably lower than in the USA, which has led to a burgeoning parallel trade between the two countries. The US has taken no clear position on the issue, but in 2005 the Canadian government indicated that it would legislate to severely restrict parallel trade. As yet, this has not happened, however.

The Chinese government will actively promote self-medication as it seeks to keep rising health expenditure down to counterbalance investment elsewhere.

China’s OTC market is growing at a considerable rate each year, faster than anywhere else in Asia-Pacific, and Espicom anticipates this market to continue to flourish over the coming years. OTC drugs only make up around 10% of the pharmaceutical market in China, so more and more foreign drug companies are entering and/or expanding their presence in the country with OTC drugs. Self-medication will be further promoted by the government as it seeks to keep rising health expenditure down to counterbalance investment elsewhere, and also to try to reduce hospital visits. Unlike in many other countries, China has permitted the internet to be a marketplace for OTC products. This will further boost sales in a country with the most online citizens in the world.

Having said this, one must not assume that traditional Chinese medicine (TCM) is not the favoured medication for many people in China. Official data from the China Association of Pharmaceutical Commerce (CAPC) puts total profit for the TCM industry in 2007 at US$2.0 billion, higher than the Western pharmaceutical market. Also, the size of the TCM market is nearly as large as the Western pharmaceutical market in China, and this market is growing at a faster pace than the Western pharmaceutical market, with a year on year increase of 21.7%. However, the government is keen to advance the Western pharmaceutical market, and is investing jointly with foreign companies into numerous R&D parks, such as ‘Medicine Valley’ near Shanghai.

The generic market has become increasingly competitive in recent years and will gradually increase its market share.

Reforms instigated in 2004, which entailed greater use of substitution, have placed a lot of pressure on older branded drugs, and prescribers and patients have been given financial incentives to switch to generics. However, reforms have not been especially ‘pro-generic’, so whilst generics will continue to be increasingly widely prescribed, their value share of the overall market will alter less rapidly. In 2007, generic drugs accounted for 36.5% of the prescription market by value; around 81% of this was covered under the GKV. In volume terms, the generic market has continued to grow each year. This was particularly impressive in 2007, when it reached 65.4% of the total market, compared with 60.0% in 2006.

Overall, Germany is the largest pharmaceutical market in Western Europe, twice the size of Italy. Growth in recent years has tended to be uneven, as government reforms take effect on pricing and/or reimbursement. While overall expenditure is still growing, GKV expenditure, which accounts for around 80% of the market, is characterised by price reductions. These are due to tighter reimbursement rules, greater use of generics and downward pressure on generic prices due to the rebate system.

The Indian pharmaceutical industry has been targeting the US generics market for some years. More recently, a number of companies have successfully gained FDA approval for a growing portfolio of injectable generics. This relatively exclusive segment of the generics market appears to be gaining a higher profile and Hospira and Pfizer have each found a way of increasing market share by doing deals with Indian manufacturers.

At the end of last year, Hospira agreed to acquire Orchid’s generic injectable finished-dosage form pharmaceuticals business for approximately $400 million. The acquisition included Orchid’s beta-lactam antibiotics manufacturing complex (comprising cephalosporin, penicillin and carbapenem facilities) and pharmaceutical R&D facility at Irungattukottai, Chennai, as well as its generic injectable product portfolio and pipeline. In addition, the companies signed a long-term exclusive agreement for Orchid to supply APIs for the acquired generic injectable pharmaceuticals business.

At the beginning of this year, Pfizer and Strides Arcolab entered into a collaboration whereby Pfizer will commercialise off-patent sterile injectable and oral products in the US through its Established Products Business Unit. The companies believe that this is a highly complementary collaboration, which is expected to deliver 40 off-patent products, many of which are oncology therapeutics, to healthcare providers and patients in the US, by joining Pfizer's solid commercial infrastructure with Strides' high-quality manufacturing capabilities. The first of the products commercialised under this collaboration are expected to be launched this year.

Pfizer is obviously keen to work with Indian manufacturers to provide a boost into the injectable generics market. In May 2009, Pfizer entered into a commercialisation agreement with Claris Lifesciences, under which the firm acquired the rights to 15 injectable products that have lost patent protection in major markets, covering a wide range of therapeutic areas including anti-infectives and pain management. The products will be marketed under the Pfizer brand in the US, where the deal is exclusive; Claris will continue to market the products elsewhere.

The rapid growth of the OTC market and pharmacy sector will be mutually beneficial to one another.

The Indonesian OTC market has a double-digit growth rate according to some estimates, which can be attributed to a number of factors that will continue to make it an attractive market. The first of these is that as Indonesia is generally a poor country, its citizens will continue to self-medicate. This can also be linked to a long history of self-medication in the country, albeit with traditional Indonesian medicines. Another factor that will help the OTC market grow is the fast-growing pharmacy sector, helped by companies such as Apotek K-24 and Century. Companies such as these have not only made OTC products more accessible and affordable, but they have also increased consumers’ knowledge of drugs, and their confidence to self-medicate. The success of pharmacy companies such as Apotek K-24 with franchising has forced the state-owned company, Kimia Farma, to follow suit. This is likely to increase sales of OTC products throughout Indonesia, making it an attractive market.

The future growth of the generics industry in Indonesia is uncertain, and is arguably dependent on a number of factors. The first of these is the value of the rupiah against the US dollar; if the rupiah continues to devaluate against the dollar as projected, many smaller generic companies could go out of business, as the market is heavily reliant on imported raw materials. Another factor is government price cuts of branded generics, which are intended to give poor citizens access to branded drugs. However, the cuts could also be viewed as biased towards the government, which owns most of the non-branded drugs. Having said that, the generics market is estimated to make up 75% of the total pharmaceutical market in Indonesia, and it will continue to dominate the country in the forecast period.

The economic downturn has led to reductions in healthcare spending, necessitating cost-saving measures such as reference pricing.

As a result of the economic downturn, the government faces an extremely tight financial operating environment in the next few years. Ireland needs to make savings of over 1 billion euros in 2010, out of a health budget of 16 billion euros. In order to do this, cost-saving measures will be implemented wherever possible.

Firstly, reference pricing will be introduced in 2010. Under the new system, only the reference drug selected by the HSE from a group of treatments will be reimbursed. In addition, although reimbursement for the over 70s was more or less automatic between 2001 and 2009, a means test has now been introduced, in attempt to slow consumption.

Another measure currently being considered by the government is to impose prescription charges on the country’s 1.4 million medical card holders, of around 50 cent per item prescribed. This would work in two ways; by raising money and discouraging the over-prescribing of medicines. The Prime Minister claimed in November 2009 that this would generate savings of around 30 million euros a year.

In addition, the Irish Medical Organisation (IMO) is calling for savings to be made through increased generic prescribing and reducing prices of generics. There is vast potential for savings in this area, as use of generics is currently very low. However, this is to try and support manufacturers based in the area, and so this is not likely to be a priority area for cost savings.

A number of high profile drugs have lost patent protection; will the Italian generic market take off as a result?

The Italian pharmaceutical market is expected to remain one of Europe’s slower growing markets over the next five years. Growth will continue to be constrained by low economic growth, cost containment measures for reimbursable products, reference pricing and an expected expansion of the generics market due to patent expiry on several high volume products.

On the plus side, this may be good news for the generic industry. Even by southern European standards, the Italian generics market is small. Excessive price regulation, long national patent supplementary protection, a lack of incentive distribution margins, confusion between branded and unbranded generics, a perception of generics as second-class drugs and the empowerment of doctors to stop generic substitution are all factors that have traditionally constrained the unbranded generic sector.

The combination of high profile drugs losing patent protection and the need to reduce costs should provide a boost to the generic market. In addition to the blockbusters that have lost patent protection in Italy in the last couple of years, a large number of medicines will lose their national supplementary certificates during 2010. Consumer perception of generics and generic awareness continue to improve. The Italian generic market is also being consolidated by leading generic producers in the country.

However, the generic industry has been coming under increasing pressure from manufacturers of branded products, which have begun to implement price cuts to minimise loss of market share. Significant price reductions have been closing the gap between off-patent brands and unbranded generics. The generic industry still has some way to go, but anticipates continued growth in market share and a progressive alignment with the rest of Europe.

The Japanese government is actively pursuing generic promotion, along with changes in the OTC market, in order to cope with its ageing population.

With 26% of the Japanese population projected to be aged over 65 in 2015, the government has a number of obstacles to overcome in order to keep health expenditure to a minimum, and the pharmaceutical market will play a part in this. Although the generic market is currently small and fragmented, it has opened up recently to foreign companies such as Teva, indeed this company could well be the national leader in the near future. Recent JV’s in the generic market, such as Teva-Kowa, have highlighted that the key to success is for foreign companies to have a local partner. Despite all this, the MHLW’s target for generics to make up 30% of the market by 2012 appears unattainable at present.

Another cost-containment measure is biennially price cuts for pharmaceutical products, although these can sometimes take place annually. Annual price cuts will likely increase in the future. In view of this, a number of Japanese companies are seeking to acquire rights to foreign companies R&D lines, in order to guarantee sales outside of the Japanese market. An example of this is Takeda’s recent acquisition of Amylin’s anti-obesity pipeline, in a deal which could eventually reach US$1 billion.

In September 2009, the regulatory reform for the sale and production of biologic and biosimilar medicines was enforced.

The new regulation establishes the requirements to launch ‘biocomparables’, which is the term chosen in Mexico to define off-patent biologics ‘comparable’ with innovative biologics; other terms such as ‘biosimilars’, ‘biogenerics’ or ‘non original biologics’ are rejected. The new regulation also sets out the creation of a Committee of New Molecules and a Subcommittee of Biologic Medicines to determine, on a case-by-case basis, the clinical or in vitro studies necessary for market registration, depending on the medical use of the product. Once marketed, a pharmacovigilance system will assess these products.

The new regulation represents sizeable opportunities for both local and foreign producers. Local producers such as Probiomed, Silanes and Landsteiner Scientific already produce biologic medicines in Mexico. Competition, however, is expected to arise from foreign producers such as Roche, Amgen, GlaxoSmithKline, Sandoz, Teva and Ranbaxy. On a patient level, the new regulation provides more safety and availability, as the sector had grown in the country without any legal framework.

The effects of the crisis are expected to be minimal given the country’s economic structure.

Whilst many countries have entered recession as a result of the economic crises, Poland’s economy did not shrink in 2009. In fact, it was the only economy in the EU that avoided contraction. There are a number of reasons for this: Polish businesses tend to rely on their own resources rather than loans and have therefore been less affected by the constraints on lending since the crisis broke out; exports account for only 30% of GDP, compared with 66% in the Czech Republic and 69% in Hungary; and consumer spending has remained high.

Consequently, the impact on the Polish pharmaceutical market will be far less than in other countries of similar development in Central & Eastern Europe, such as Hungary. There will be less of a need to reduce spending on healthcare and the disposable income available for purchasing pharmaceuticals should remain steady, although unemployment is predicted to rise marginally in 2010, which may be detrimental to retail sales. The market will continue to be driven by high import growth and the increased demands on healthcare that are associated with the ageing population.

The Russian government has developed an initiative to help boost the domestic production of innovative pharmaceuticals, which could ultimately lead to generics losing market share.

Currently, Russian manufacturers mainly produce inexpensive, low technological products; a strategy for encouraging growth in the local pharmaceutical industry for the period up to 2020 envisages the government helping local producers to cover the costs of the R&D that is required to boost production of innovative pharmaceuticals. If the objectives of the plan are realised, by 2020, the local industry will be responsible for 50% of drugs in circulation (compared with 5% in 2007), 80% of which will be innovative.

The modernisation of the local pharmaceutical industry will ensure the replacement of foreign generics with Russian equivalents and ultimately by innovative drugs of Russian origin. However, the setting up of innovative production will be a long process requiring substantial investment. Slow economic growth will remain an obstacle to funding in the short term at least. In addition, generics will remain a popular alternative to the more expensive branded pharmaceuticals whilst the country recovers from the economic downturn.

South Korea remains an attractive prospect for biologics and biosimilars, with investment from both government and multinationals in this field.

South Korea has a long history in manufacturing biologics. The emergence of a number of Korean companies, including SK Chemicals and Chon Kun Dang, manufacturing generic versions of Roche’s Tamiflu (oseltamivir), indicates that some Korean companies are performing strongly. It also indicates that larger companies in the biosimilar sector have made considerable strides in R&D, manufacturing and distribution in recent years. SK Chemicals, for example, believes that it could have its version of oseltamivir for sale in less than a month after marketing approval is given. This is arguably the result of massive investment in this sector from both government agencies and multinational companies.

First of all, in August 2009 the government announced it had selected two provincial cities, Osong and Daegu, to become sites for high-tech medical-industrial clusters, which are expected to cost around US$5 billion in total. Construction began in 2009 and should be completed by 2012. The government hopes the project will make South Korea a regional pharmaceutical hub like the Boston Bio Cluster in the USA and the Kobe-Osaka-Kyoto triangle in Japan. This was followed by the Swiss pharmaceutical giant Novartis announcing in October 2009 that they will be investing US$100 million into its research division for new drugs whilst also bolstering its biologics manufacturing capabilities. In a deal signed with the MIHWAF, Novartis also announced that they will be providing money for investment in local small-scale biologics manufacturers.

The generics market will benefit from upcoming patent expiries, but further price controls may hinder growth in money terms.

The Swiss government is keen to contain costs in the healthcare sector, and a number of specific measures have been taken to rein in costs. The promotion of generics has been at the forefront, with spectacular success since 2001, when generic substitution was introduced.

The first price control on generic drugs was implemented in 2005; new generics had to be priced at least 30% below the level of the corresponding original drug in order to qualify for reimbursement. In 2008, this was reduced further to 40%. This is likely to boost generic use by volume, but will serve to hinder growth in money terms. The major companies in the market have been able to cope with previous price cuts by increasing volume sales, although the decreasing amount of ‘slack’ in the market may make growth harder to maintain in 2010. Patent expiries will become a far more significant source of growth.

By international standards the Swiss generics market remains uncompetitive. Over 70% of generic sales are made by two companies; Mepha and Sandoz. A more competitive environment would almost certainly lead to lower price levels. However, the government’s policy of period price reductions may prove counterproductive in this regard, by making the market less attractive for new players and further solidifying the position of the existing manufacturers. A few other companies, notably Teva, Actavis and sanofi-aventis (through Winthrop), are active in the market, but to date have not gained much market share. It is noticeable that, in stark contrast to the other leading markets of Western Europe, no Indian or central European companies have yet shown much interest in Switzerland.

Generics represent a third of the Turkish market but there is room for expansion.

Turkey has a strong generics industry; according to the Pharmaceutical Manufacturers Association of Turkey, almost three quarters of locally produced pharmaceuticals were generics in 2008. Generics account for around a third of the market in value terms and over 50% in volume terms; however, physicians are not actively encouraged to prescribe generic drugs and there are no incentives for pharmacists to dispense them, so there is potential for this to increase.

The economy contracted by 5.6% in 2009, but is expected to grow by 3.0% in 2010. As Turkey recovers from the economic downturn, generics may become a more popular alternative to expensive branded pharmaceuticals. This will be helped by the fact that generic substitution is legal in Turkey; the pharmacist is obliged to inform the patient of the substitution, but this may be declined. The ageing population and associated increase in health spending may also force the government to look into the possibility of using generics to cut costs.

Reductions in health spending and industry job cuts could have an impact on the market, but an ageing population and a health service under pressure will guarantee an increasing demand for pharmaceuticals.

The UK pharmaceutical market is set to experience moderate growth over the coming years, tempered slightly by the effects of the economic recession. Public spending cuts are likely, as public debt continues to increase, and health expenditure is set to suffer as a result. In 2010 the NHS budget is £102.3 billion, but this could fall by 2.5 to 3.0 per cent per annum from 2011/12. This follows a period of huge growth in health spending under the Labour government, which has seen the NHS budget almost triple. However, the NHS is well equipped to deal with the financial shortage, as it has seen marked improvements in recent years.

Many pharmaceutical companies have announced job cuts worldwide in recent months, in an effort to reduce costs, and many staff based in the UK are likely to be affected. These companies include Eli Lilly, GlaxoSmithKline, AstraZeneca and Pfizer. Job cuts are to be expected considering the economic climate, as well as upcoming challenges for these companies, including patent expiries, increased generic competition and slowing innovation.

A number of key pharmaceutical and biologic products are going off patent in the coming years, which will strengthen the generics market. Despite budget constraints, increased pressure on the NHS to cope with the health needs of an ageing population will lead to a rise in demand for pharmaceuticals, and a willingness to invest in new therapies to ensure effective treatments.

Options exist but it is not clear that a stripped-down healthcare reform bill can be approved soon.

A key aspect of President Obama’s policies has been to overhaul the healthcare system. In January 2010, the Democrats lost the Senate’s seat in Massachusetts to the Republican candidate Scott Brown. For decades, this seat had been held by Ted Kennedy who had pushed the healthcare reform bill. The loss brought an end to the Democrats’ 60-seat supermajority in the Senate. This is a blow to Barack Obama’s agenda and the healthcare reform is now in doubt. Mr Brown has already expressed his opposition to the healthcare reform bill. Ironically, he has supported a similar bill in Massachusetts.

There are several options left for passing the healthcare reform bill, but none of them are clear. One option would be for Democrats to press the House to pass the Senate’s version of the healthcare reform; the Senate’s version was approved on 24th December 2009, without any support from the Republicans, whilst the House bill was approved on 7th November 2009 with one Republican’s backing. However, House Speaker Nancy Pelosi has said that she does not think that this version could pass the House without changes, particularly regarding the tax on high-insurance plans and the less-restrictive use of federal funds to cover abortions.

Another option would be to put together a scaled-back healthcare bill and take it through the reconciliation process, but such a move seems unlikely too. This would require a 51-vote majority in the Senate but is limited to issues with a budgetary impact. Both options would require more time just when Democrats need to address other major issues, especially the overhaul of banking regulations, an energy bill for limiting emissions of greenhouse gases and the immigration reform that would regularise the status of illegal immigrants. President Obama has indicated that he might be willing to scale back his proposed healthcare overhaul in order to attract bipartisan support but it is not clear that a stripped-down bill can be approved soon.

Further reading - A detailed analysis of the US pharmaceutical market is available from Espicom: The Pharmaceutical Market: USA (published January 2010)